The value of an advisor’s time is one of the core questions of building an advisory firm. After all, this value not only affects business decisions, but advisors need to be able to explain (and justify) the value of their advice to new clients. Over time, many advisors find ways to talk clients through their concerns – but the fee conversation is nonetheless a common part of prospecting discussions. However, some clients pose the opposite problem: they enter into the advisory relationship willing to pay an advisor considerably more for their time than other clients. While positive on its face, this can also pose a series of operational (and existential!) questions to the advisor – ‘should’ they let that client pay more? If so, how much more?
In this 202nd episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss clients who are willing to pay over the advisor’s standard pay grade… and what that could mean for the value of the advisor’s advice. On one hand, this could be a signal that the advisor has undervalued their service – or that the value of their advice has shifted as their expertise has grown! On the other hand, some advisors may feel that the client is ‘overpaying’ – and that if their firm is already profitable, there ought to be a maximum that clients pay for their services. If the firm is viable and the advisor is content with their lifestyle, is there a ‘point’ in earning more?
While some advisors pose this as a question of ethics, it is perhaps more useful to consider what the advisor wants to build. Some advisors are extremely income-motivated, or aspire to grow their team and firm. In that case, the goal is likely to make this prospect the first of many higher-paying clients – as the line of logic goes, one higher-paying client can likely give referrals to others like them. Or the additional cashflow may give the advisor an opportunity to scale the firm, evenif the long-term goal isn’t to find more clients at that level of affluence.
